Boosting Monthly Savings by $33 Could Add $330 to Retirement Paycheck

Fidelity Investments advises that younger workers who boost savings by just 1% can meaningfully impact their monthly paycheck at retirement.

Fidelity Investments added the financial planning advice to its latest quarterly analysis of asset levels and participant behavior among the firm's 12.4 million 401(k) plan participants.

Fidelity, which administers the most retirement assets in both 401(k) plans and IRAs in the U.S., noted the average 401(k) balance rose nearly 11%, to $80,600, at the end of the second quarter from the previous year.

That balance was far higher — $211,800 (up nearly 19% from a year ago) on average — for continuously employed workers enrolled in a 401(k) plan for 10 years.

Another positive trend: For the past four years, workers have continued to increase their salary deferral rate.

But Fidelity also seized the occasion of its quarterly report as a teachable moment, warning that younger workers in particular are not saving at a recommended rate of 10% to 15% of income (including employer contributions).

“It is critical young workers realize that even the smallest increase to their monthly savings today [of] just 1% — whether in a 401(k) or an IRA — could have a meaningful impact on their retirement paycheck down the road,” wrote Fidelity .

To illustrate this impact, Fidelity says a 25-year-old worker earning $40,000 annually would need to put away just $33 a month.

For example, an assumed 1.5% annual income growth spanning the worker’s career, retirement at age 67 and no hardship withdrawals — that worker could increase his monthly paycheck by $330 a month if he is fortunate enough to earn a 7% annual rate of return. At a 5.5% average annual return, the worker would still see a $200 monthly increase in his retirement paycheck.

Source:  ThinkAdvisor.com 

D2 Capital Management offers fee-only consultations for persons enrolled in 401(k) plans.

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